Freight volume increased throughout 2011, but the excitement of new business was accompanied by a constant drumbeat of concern about capacity shortages. That’s because the industry lost as many as 325,000 trucks, representing 18% of available capacity, from 2007 through 2010,* according to industry analyst Donald Broughton of Avondale Partners. Although fewer carriers and trucks left the market in 2011 than in any recent year, according to Broughton, higher truck prices, lower availability of credit and other factors slowed the rate of replacement.
One result of the capacity shortfall was an increase in freight rates during 2011, especially during periods of high demand. Rate increases did not, however, lead to higher profit margins for most trucking companies. The Stephens TL Index was down 24% for the year, and its LTL Index slid 21%, making 2011 “the worst year so far this century” in terms of stock performance for publicly traded carriers, according to the investment analyst’s January 11 Industry Note. Stephens blamed barriers to asset utilization, including regulations, an anemic economy and driver shortages. Small carriers were hit hard, too, as costs continued to outpace revenue growth for 97% of the for-hire carriers who have 20 trucks or fewer.
Despite high unemployment in 2011, carriers were not able to add enough drivers to meet demand. For-hire trucking added just over 40,000 jobs in 2011, a 3.2% increase, according to estimates by the Bureau of Labor Statistics, but the total number of jobs has yet to exceed 1.3 million, which is 10.8% lower than peak employment of January 2007. Regulations such as the CSA safety program did not have as much impact as anticipated, but the program scrutinizes drivers more closely and holds carriers responsible for their employees’ performance behind the wheel. Mandatory Electronic Onboard Recorders (EOBRs) are also blamed for discouraging drivers, who might be less willing to take long haul assignments. Driver wages are relatively stagnant, so the recession isn’t entirely over for them.
Capacity constraints led to some new tactics in supply chain management at shipping companies. Shippers turned to their contract carriers first, but when those companies couldn’t provide enough trucks, 36% more freight was funneled to intermediaries and to the spot market. For-hire truck tonnage increased by 5.7% for the year, according to preliminary data from the ATA, so the spot market grew faster than the industry overall. Surveys indicate that for-hire carriers are entering into shipper contracts for shorter terms, too. Some carriers even reserve capacity for the spot market, especially during peak seasons, to take advantage of higher rates.
Illustrations by Eric Savage of Savage Creative
The Road Ahead: More Trucks in 2012, but Maybe Not Enough
The outlook for capacity in 2012 is mixed. New Hours of Service rules were not as bad as anticipated, and CSA did not have as big an impact as expected, according to a research report quoted in Heavy Duty Trucking. Fuel prices are declining, at least for now, relieving some cost pressure on carriers.
In one sign of an optimistic outlook, carriers are buying new trucks again. Class 8 truck sales rose 46% in December, compared to weak November sales, bringing the expected total to 312,000 units for the year. That represents 13% or one eighth of the 2.4 million Class 8 trucks that were on the road in 2010, according to the American Trucking Associations, but a large portion of the new vehicles are likely to be replacing outdated trucks rather than adding to fleet size.
Commercial trailers also enjoyed robust year-end sales, with 29,000 units in November setting a record for the highest single-month volume since March 2006. These surges could indicate optimism on the part of carriers, who were reluctant to increase fleet sizes throughout 2011.
At the same time, any economic growth could lead to increased demand for freight transportation. An upswing in construction, in particular, could squeeze flatbed capacity, which was already tight throughout much of 2011. Expect shippers and intermediaries to look for creative solutions as the year progresses, shifting some freight to rail intermodal for the longest hauls and delivering imported goods by sea directly to the Gulf and Atlantic Coasts, closer to the centers of consumption.
How can there be a shortage of drivers and trucks, when drivers are waiting for loads, like my self!
Enjoyed the blog!
I don't get how there is a shortage of trucks but the rates are junk!?! All too often the Brokers don't want to pay enough for the Driver to make a living but want the freight to move. 1+1 is not 37. Start paying a rate high enough and there will be trucks.
there is no such thing as shortage of drivers or trucks; there are a lot of new and old drivers quitting the industry as well as owner ops. and many small companies, new drivers quit because they find out trucking is not as easy as they thought it was.old drivers quit because the government is over Regulating the wrong side of the industry.they need to work on Shippers, Recievers. that consume drivers time on loading and unloading docks without pay ,if a driver gets late to either end chances are he will get.fined with up to $ 200.dollars for late arrival.that less money out of the all ready cheap freight. it equals us paying to work instead of getting paid to do so. just today i got some phone calls with offers of multiple drop load to cover a truck. el paso.TX . to sacramento.CA .1180 miles line haul pay,offer $800 + $25 for every additional drop that makes $925 dollars drops where between 10 and 40 mi from each other .fuel only will cost about $900. ...what broker on the right mind will offer that to a trucker. where do we need the regulations? what is going on with some people in the trucking industry? is that people in this businness by accident?
Good article. This is good info to know...
As a Landstar agent I find that there is a lot of good paying freight but all to often the drivers are unwilling to go to certain areas of the country and have limited their potential earnings. For example if you can make 2.50 a mile to go to the east coast and bring back 1.30 per mile that is a good average of 1.90 per mile.
this is baloney, rates are so cheap and there are to many trucks.and the csa is horrible,it just hasent caught up with everyone yet
Trucking as a whole needs to start putting more pressure on futures trading of oil and how its being manipulate by the brokerages, futures traders. If Oil prices can be controlled, or stabilized and get away from the TERROR THREAT LEVELS that cause oil prices to fluctuate because Achmidinajihaddist Farts,,,Im tired of Iran and any other small country being able to effect fiscal costs and policy by sabre rattling that amounts to HOT AIR. Lets put more pressure on getting diesel costs DOWN below the cost of gasoline where it should be, Arent we being blackmailed every day at the pump.
How can there be shortage of Drivers when I have a clean record no accidents and the companies (not to name some of them) tell me just because where I live they won`t hire me.
Every post has a bit of insight and truth but little balance. My truck grossed about $250K last year but after expenses, lifestyle requirements, and overall risk, March 31st 2012 will be the last day of service. The combination of healthcare expense, workmens comp, and the attempt to "run legal" cuts deeply into profits. Given a salary $60K, there should be some additional profit left for risking capital, waiting expectantly for the hauling revenues to arrive as well as the investment in equipment and back office needs. Put me down as terminated.
I've been analyzing capacity, demand and their effect on rates, so I started answering some of the questions above. Starting from the top, here are a few ideas for carriers and brokers:
Right now there is capacity in most lanes, but it could change totally by March. Shipping and receiving companies need to put better practices in place for loading and unloading, or there will be even more pressure when the freight volume picks up!
Different lanes have their own seasonal patterns and rate histories, so a little bit of flexibility on routing can sometimes earn you a lot more money at the end of the day. Capacity was tight in 2011, and rates rose. January is slow, and rates dropped – although there are some notable exceptions. If the economy continues to improve, many markets will be short of trucks by mid-March, and rates will start to rise again. The truck shortage and higher rates should last through September.
Your description confirms what we are seeing: an unusually soft market even for January, which is typically a slow season. The lane from El Paso to Sacramento is usually balanced and pays well, but today’s load-to-truck posting ratio tells me that this lane is very bad for truckers right now, in both directions. If you can re-position your truck, I’d suggest looking north to the Upper Rockies. There is outbound freight from Idaho, western Colorado, and even in Utah and parts of the Dakotas. The Mississippi delta has also been stronger lately, so you might try Arkansas, Louisiana, Mississippi, and western Tennessee. Everywhere else is quiet right now, so it’s tough for carriers to find a good rate.
From the trucker’s point of view, the high-paying head hauls are usually paired with terrible back hauls. There could be some loads coming back at $1.30 per mile, but those get booked fast, and the remaining truckers may have to accept a rate that doesn’t cover their costs. One answer may be for them to take a short haul in the 330-450 mile range and move into a smaller market with better balance on the way home. For example, an Alabama truck in Philadelphia may be better off taking a load into the Carolinas, and another one from there to Birmingham. A straight back haul from Philly to Birmingham competes with all the other drivers as well as rail intermodal. If you can find those “trihaul” routes for your carriers, they will get better average pay per mile. Help them out with this, and they will be happy to help you find a truck next time you need one. Be sure to look for freight that can be unloaded and reloaded quickly, so they don’t lose a day.
Rates really dropped in January, as happens all too often. But inventories are tight, too, so just a little boost in demand will be enough to get freight moving. Demand is low for the moment because consumers shopped like crazy at Christmas, and now they’re hunkering down and paying off their credit cards. The good news is that economic trends are positive, especially in manufacturing, so rates should start to rise in mid-March. That’s only six weeks away, so hang in there!
Too many trucks + cheap customers= low rates.Way overpriced new trucks + overpriced repair costs on newer trucks= no replacement of older trucks.Goverment + big business(one in the same)= screwed truck drivers.Do I have to go on?
I don't get how there is a shortage of trucks but the rates are junk!?! All too often the Brokers don't want to pay enough for the Driver to make a living but want the freight to move. Start paying a rate high enough and there will be trucks.
Trucking has never been this bad for drivers and owner operators. And the Government under Obama is to blame along with freight brokers who try to beat Truckers out of a decent rate. Also remember this there is not always a return load. It is stupid to think that for every load going out there is a load coming back.
Leo, as Mark pointed out, rates are typically at their lowest in January and February, but he expects things to pick up in March. This may not be true in every market, however. Rates will be best in those cities where there is a lot of outbound freight chasing a smaller number of available trucks.
All I see in Calfirnia is mexican names on the doors. In the construction industry, the large contractors are paying as low as $65.00 per hour. And the time start when you get to the jobsite. Most trucks can not afford the fuel. The regulations also started to get real bad back in 2008. I quit in 2010 and now I just drive for someone else.